Posted by Raven Skylar Tax & Consulting, LLC

What Is & How Does a Foreclosure Work?

What Is & How Does a Foreclosure Work?

Usually, people work harder and save enough money to acquire a home of their choice. However, many cannot keep up with the financial demands due to some unplanned events or circumstances. As a result, such homeowners won’t be able to afford their mortgage payments and other monthly bills. 

When such a situation arises, there might be a foreclosure. Note that many homeowners in the United States of America face a similar situation yearly, meaning that you are not alone if you face foreclosure. 

This article gives a detailed explanation of foreclosure and how it works. It also explains what you need to do in case of a foreclosure. Furthermore, you will also be able to know what foreclosure and what it is not.

 

Understanding Foreclosure

In an ideal situation, a person who cannot make a payment at a particular time can always do so later, based on the agreement between the parties involved. However, the problem arises when you cannot pay your mortgage for a long time. In such a case, foreclosure is inevitable.

By the way, what is foreclosure?  It is a condition that occurs when a bank or lender takes possession of a property from the owner. In other words, it happens when homeowners lose their homes to their banks or lenders.  

A foreclosure is a difficult situation for homeowners, especially if the person involved owes more money than your home's worth. This is referred to as an underwater mortgage. Furthermore, foreclosure is a way through which a financial institution recoup its losses. 

The best way to avoid foreclosure is to avoid running late or missing your mortgage payment. Going through a foreclosure can make things a bit difficult because it will reflect on your credit card. For instance, your credit will be checked when buying a new house or getting a job. 

Defaulters will be offered a 90-day ultimatum to settle their outstanding mortgage payments.  This usually depends on the state and bank concerned. If you are unable to meet their demands, your bank will issue you a notice of default. Issuing a default notice is the first step for a mortgage that is long due. The banks give defaulters enough time before foreclosure; this is known as pre-foreclosure time. 

It takes a year or more for a full foreclosure to take effect. The bank has to go through a series of steps before a foreclosure.  For instance, they have to offer a default notice, give a warning, go to court, and give defaulters enough time to pay.  The home will then be put up for sale if the homeowner cannot meet the mortgage demands.

 

How Does a Foreclosure Work?

When you cannot keep up with the mortgage payment, your lender or bank will send you a ‘notice of default.’ Defaulters in this regard are those who are unable to meet their financial obligations. In other words, they have not been able to pay their mortgage. 

You should contact your lender's loss mitigation department and explain things to them on receiving this letter.  Hopefully, you can work out a solution or discuss a new loan term. 

If you continue to default on your mortgage payment, the lender will file paperwork towards the foreclosure of your home. 

Bear in mind that the laws guiding foreclosure vary from one state to another; therefore, you should endeavor to check your state's foreclosure laws and get in touch with an attorney if you are at risk. 

Once the paperwork has been filed, and you are still unable to settle your mortgage payments, the lend or bank foreclose your home. Afterward, there will be a foreclose sale or auction so that the lenders or banks can make money on their investment.

 

Conclusion 

As a homeowner, you must avoid foreclosure by making sure you don’t default on your mortgage payment. Instead of walking away or absconding, you can contact your bank's loss mitigation department to discuss how you can meet your financial obligations.


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